How far Texas’ electric deregulation has come
January marks the 10th anniversary of the deregulation of the Texas electricity market, a policy that has spawned new and diverse options for customers, but whose effect on rates remains debated.
The deregulated energy market opened Jan. 1, 2002, following the Texas Legislature’s approval of the policy in 1999.
More than 40 retail electricity providers now compete for customers in a market that was previously run by a handful of regulated utilities and co-ops.
Meanwhile, most business and residential customers have switched to electricity providers other than the formerly regulated utility companies, according to the Electric Reliability Council of Texas , operator of the state’s power grid.
“As the market develops with technology, (customers) are going to have more and more choices of products, and all at a price that is lower than the price of the last regulated rate,” Fainter said.
It’s taken a while
According to the association, the last regulated rate in Dallas was 9.7 cents per kilowatt hour, which, when adjusted for inflation, would equal 12.2 cents per kilowatt hour today.
Today, the lowest one-year locked-in rate available to Dallas customers is 8.2 cents per kilowatt hour, and the average of all residential customers in the North Texas region is 9.5 cents.
Randolph C. Moravec, executive director of Texas Coalition for Affordable Power, said it’s taken a while for Texas to see cost benefits of deregulation. The coalition is a group of 163 local governments that jointly negotiates power contracts from suppliers.
“Prices were higher than the national average after deregulation and through much of the 2000s,” Moravec said. “We have expectations that the market will continue to depress prices.”
As of August, Texans were paying an average of about 11.5 cents per kilowatt hour for electricity, compared to the national average of about 12 cents, according to the AECT.
Twenty-nine states averaged higher rates than Texas, and the rest were lower.
Realizing the lowest prices
Natural gas is the biggest factor in the price of electricity in Texas, because gas is the marginal fuel in ERCOT and power prices are based on natural gas prices, industry officials said.
“When the cost ran up because gas ran way up, there was a lot of argument against deregulation, but we would have seen those impacts in a regulated market as well as a deregulated market,” said Paul Ward, president of Texas Electricity Professionals Association.
“The fact there … are increased options for how you buy and what you buy and the strategies that can be developed around that buying has really helped customers realize the lowest prices they could have realized.”
TEPA formed in 2005 as a self-regulating trade group for the proliferation of electricity aggregators, brokers and consultants working in the deregulated market.
Texas’ deregulated market ranked as the top market for residential, commercial and industrial customers in an annual report released last month by Distributed Energy Financial Group.
The report, titled “Annual Baseline Assessment of Choice in Canada and the United States,” highlighted innovation in products and services, such as energy price risk management services for commercial and industrial clients, online tools for customers to control and monitor electricity usage, and prepaid electricity plans.
“The real opportunity of Texas of the restructured market is individual consumers aligning what they need with what they buy in the marketplace,” said Nat Treadway of Houston, a managing partner for the group.